July 26 (Bloomberg) -- Brazil’s consumer-loan default rate
fell in June for the first time in three months, as the
government’s drive to lower borrowing costs provides relief to
indebted families.

The consumer default rate declined to 7.8 percent from a
revised 7.9 percent in May, the central bank said in a report
distributed today in Brasilia. The company loan default rate
slid to 4 percent from 4.1 percent over the same period. Lower
interest rates, higher income levels and a more conservative
selection process by banks have caused default rates to fall,
the central bank’s head of economic research, Tulio Maciel, told
reporters in Brasilia today.

Since August, Brazil has cut the benchmark Selic rate 450
basis points to the record low 8 percent and pressured banks to
lower rates on loans to accelerate a sluggish economic recovery.
Easier credit access, a drop in delinquency rates and record-low
unemployment will help drive consumption in the world’s second-largest emerging market, central bank President Alexandre
Tombini told reporters July 23. Policy makers have also
implemented growth measures such as tax breaks on automobiles
and consumer goods.

“Private credit is still growing robustly,” John Welch,
macro strategist at CIBC World Markets, said in a telephone
interview from Toronto. “Brazil is not suffering from a lack of
demand.”

Loan Rates

Brazil’s average interest rate on loans rose 0.2 percentage
point to 31.3 percent in July 1-16, Maciel said.

Some of the country’s largest banks said this week that
profits have been hit by consumers’ difficulties in paying their
debts.

Banco Bradesco SA, Latin America’s second-largest bank by
market value, said on July 23 that second-quarter provisions
against bad loans rose 40 percent. Itau Unibanco Holding SA said
July 24 that the average default rate for payments at least 90
days overdue rose to 5.2 percent in June from 4.5 percent a year
earlier, and provisions rose 17 percent from 2011.

Consumer confidence in Brazil fell in July for the third
month in a row, according to data released from the Getulio
Vargas Foundation yesterday.

Credit Growth

Outstanding credit rose 17.9 percent in June from the same
month last year to 2.2 trillion reais ($1.1 billion), the
central bank said today. Credit increased 1.5 percent from the
previous month.

Swap rates on the contract maturing in January 2014, the
most traded in Sao Paulo today, rose one basis point, or 0.01
percentage point, to 7.68 percent at 11:01 a.m. local time. The
real strengthened 0.3 percent to 2.0264 per dollar.

Brazil’s gross domestic product expanded at a 0.8 percent
annualized rate during the first quarter. The central bank
forecasts 2012 growth will reach 2.5 percent, while economists
surveyed weekly by the central bank expect an increase of 1.9
percent.